Sardar Biglari’s First Rule Of Corporate Governance: Do As I Say, Not As I Do

August 17, 2012
By

: near off I-75.

As an activist, has taken stakes in various companies, and, when he hasn’t gotten his way, pushed his agenda in the name of good governance.  See, for example, the recent amendment by the Chairman and CEO of (BH), of his 13D on (CBRL). Emphasis is added:

On August 16, 2012, delivered a letter to the Secretary of the Issuer nominating Sardar and Philip L. Cooley to stand for election to the Board of Directors of the Issuer (the “Board”) at its 2012 annual meeting of stockholders (the “2012 Annual Meeting”).  The Reporting Persons have had and will continue to have discussions with the Issuer about representation on the Board.  The Reporting Persons continue to believe that the Board requires directors who have a meaningful ownership interest in the Issuer as well as highly consequential industry experience.  The Reporting Persons are committed to seeking such representation for the benefit of all shareholders without the need for a costly proxy contest. As a consequence, the Reporting Persons have communicated to the Issuer’s CEO and recently designated Independent Chairman their desire for two Board seats, their interest to work constructively with the Board, and their interest in avoiding a costly proxy contest. The Reporting Persons are awaiting the Issuer’s response and maintain that all shareholders’ best interests lie in a favorable outcome.
So, Mr. Biglari tells us that Board members should have “meaningful ownership interest” and “highly consequential industry experience”.  A sentiment that is reasonable and with which we agree.  Surely, Mr. Biglari’s own Board at Biglari Holdings must be packed with members with such qualifications!
Alas, as we wrote earlier this week, Mr. Biglari has just added a Board member who owns no shares of the company, has no industry experience, and who serves on the Board of a company that is 12.8% owned by Biglari Holdings, and of which he himself owns no shares, despite having served on the Board for years.  The Director, James Mastrian has also been added to several key committees including audit,compensation and governance, despite no particular expertise in any of those areas.
What’s good for the goose, is apparently not good for the gander.  It would appear that Mr. Biglari’s real requirements for Board members, whether for his own company or others, is that they be him, or be a proxy for him.  Biglari is clearly a smart man, and he may well create value for Biglari Holdings and Cracker Barrel shareholders. But don’t believe this wolf in a lambskin coat when he tells you what a nice sheep he is.
Disclosure: The author holds shares of BH
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This entry was posted on August 17, 2012 at 3:26 pm and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed.

  • Greg

    Don’t you like Biglari? He has said that he wants to treat his shareholders well. For example:
    “We are here to make money with you, not off you”-Warren Buffett, 1996 letter to shareholders.
    “Not only will I refuse extra remuneration for the time I intend to commit, but I also will not accept any stock options. The reason is simple:We are one of the largest shareholders; thus, we plan to make money with you, not off you.”-Sardar Biglari, 2008 letter to Steak N Shake shareholders.

    • http://twitter.com/inelegantinvest Inelegant Investor

      I think you’re being sarcastic, though I can’t be sure. Biglari claimed he he would refuse extra remuneration, then gave himself a huge raise and incentive structure.

      • Greg

        A major issue that I see here is
        that when the incentive compensation agreement was approved the
        stated book value of the company was about $250 million, I think
        that the economic value exceeded $650 million. The difference was
        appreciation of assets over decades, a lot of it because of
        inflation, not real appreciation.

        25% of the $400+ million difference is $100+ million. Easy for
        Biglari to take even though he may have had nothing to do with
        that appreciation (inflation).

      • Greg

        You are correct. I have posted a reply.
        A major issue that I see here is that when the incentive compensation agreement was approved the stated book value of the company was about $250 million, I think that the economic value exceeded $650 million. The difference was appreciation of assets over decades, a lot of it because of inflation, not real appreciation.
        25% of the $400+ million difference is $100+ million. Easy for
        Biglari to take even though he may have had nothing to do with that appreciation (inflation).

      • Greg

        If Biglari were fired, with no change in his compensation agreement, what would the stock price be?
        What would Biglari Holdings Inc. then be worth?
        (Assume he would get what the current contract says he is entitled to up to the date of his dismissal.)
        This is somewhat of a rhetorical question; I think most analysts would agree on the range of values.



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